By: Sarah Kyo
Employees are often described as the lifeblood of a company, helping it reach its business goals and achieve success. Over time, any organization can expect some of its team members to come and go for various reasons: retirement, moving, life transitions, and more. However, when a company faces replacing a lot of lost talent within a short amount of time, its health may be at serious risk. Before we dive into how to increase employee retention, let’s take a closer look at employee turnover.
Types of Employee Turnovers
Employee turnover occurs when companies lose some of their staff and need to hire and train new people. The two main types of employee turnover are voluntary and involuntary. Voluntary employee turnover happens when an employee decides to leave on their own accord for any sort of reason. Involuntary turnover is when the company implements layoffs because of poor job performance, absenteeism, or other reasons. For involuntary turnover, the decision is made by the employer. Some degree of employee turnover is to be expected and needs to be accounted for when budgeting and planning for the year. Even so, employers have the biggest influence and control in preventing voluntary employee turnover from happening in the first place. It is for these reasons that the voluntary turnover rate is the measure used to discuss and compare employers.
Causes for High Employee Turnover Rate
Poor Company Culture
Companies should have a pulse on how employees are feeling about the workplace, executive leadership, the company’s direction and vision, and their colleagues. Having poor core values communication and a poor company culture may cause an employee to become much less engaged in their day-to-day work and more compelled to search for new opportunities at other organizations. In addition, employees’ negative experiences at work may lead to influential and caustic reviews on Glassdoor or other workplace review websites, critiquing everything from the CEO to a lack of opportunities for personal growth and career advancement.
Poor Business Performance
In extreme cases, poor business performance may force the company to make severe cost-cutting moves, such as departmental restructuring and layoffs. These can be considered examples of involuntary employee turnover since the company made the decision for the employee to part with the organization. However, these actions can impact overall morale and possibly trigger other employees to seek out new jobs elsewhere.
Regardless of the reasons why employee turnover may occur in the first place, it’s important for companies to realize how often it occurs within their organization and to make efforts to keep it under control. For one thing, too many employees leaving at around the same time can stifle progress on some important projects and initiatives, possibly affecting the company’s bottom line.
High Turnover Rate Affects the Bottom Line
The potential loss of major, impactful contributors can be difficult and time-consuming to replace because of their shared knowledge and familiarity with processes and procedures. Plus, the time and effort spent during the hiring-and-training process can be costly.
- According to a 2018 Training industry report, large-sized companies with 10,000 or more employees had on average $19.7 million allocated for their training budgets, spending $1,046 per person.
- Medium-sized companies with 1,000 to 9,999 employees had an average training budget of $2.1 million, spending $858 per person.
- Small companies with 100 to 999 employees had $355,721 on average allocated to their training budget, spending the most on average at $1,096 per person.
Because of the possible fallout for having turnover rates that are above average, it’s imperative for companies to track their employee turnover and ultimately take proactive, preventive measures to improve employee retention in the long run.
How Employee Turnover Rate is Calculated
When addressing high employee turnover, it’s important to better understand how turnover is calculated in the first place. To compare different organizations, the employee turnover rate calculates the number of employees who have left a company during a specific time period. It’s usually expressed as an annual turnover rate by using a percentage of the organization’s total number of employees. Voluntary turnover is generally used as the measure for discussing and comparing companies in similar industries. For example, if 10 out of 100 employees leave a company during a year, then the annual turnover rate would be 10 percent. Across all industries, the average total employee turnover rate is 17.8 percent, according to a 2016 Compensation Force study.
The causes for employee turnover can vary depending on the type of industry. For example, in the competitive tech industry, high demand for top-performing talent along with rising compensation may contribute to turnover. When there’s such a great need for high performers, the best and brightest may leave a good opportunity for an even better one out there. Meanwhile, the employee turnover rate in the retail industry can be high, thanks in large part to seasonal work, individuals seeking out opportunities in other industries, and the transition to more online shopping.
Impact of High Employee Turnover
Regardless of the type of industry, keeping track of the employee turnover rate is one way that human resources and other similar internal teams can help their companies better control their budget. For employers, losing an entry-level employee can cost 50 percent of that person’s annual salary on average. When it comes to losing a technical or senior-level employee, it can cost 125 percent of their annual salary on average.
Also, the employee value proposition (EVP), or the outwardly perceived value that employees are supposed to gain from an organization, can be just as important for keeping staff around for a longer period of time. In fact, according to Brian Kropp, group vice president for human resources at Garner, “Organizations with attractive EVPs can reduce the compensation premium needed to attract qualified candidates, as well as potentially decrease annual employee turnover by just under 70 percent, all of which helps the company’s bottom line and brand reputation.”
However, it’s not just veteran employees that companies need to be concerned about when it comes to employee turnover. Creating a successful onboarding experience can help new hires feel more integrated and rooted in their new working environment. The amount of new employees who’ve regretted their decision for a new job opportunity has increased by almost 50 percent since 2008. Considering that about 24 percent of new employees leave their latest company within the first year, restarting the hiring and training process by backfilling for the same role would be a time-consuming and expensive undertaking.
Tips on Reducing Employee Turnover
Ideally, a new hire would buy into the company’s EVP and see the potential for a long-term future with the same company. However, it’s important to keep in mind that once a new employee is fully on-boarded, the work doesn’t end there. When it comes to improving employee retention, developing a deep relationship between the employee and the company is key to helping team members feel like they belong and want to commit to the company over a longer time period. With any great relationship, communication is key, and the same can be said for companies and their staff. Ultimately, strong employee communication can help enhance and maintain company culture for both new hires and company veterans. With all that in mind, here are five tips for increasing the chances of better employee retainment and lower turnover:
- Ask for employee feedback. Companies may not know there’s an issue until they hear from the people who are directly affected. This is especially important during times of change, such as mergers and acquisitions or introductions of new processes and technology. Great Places to Work surveys and other similar qualitative and quantitative data can help companies better comprehend where they stand with their employees and measure overall employee sentiments. Also, when communicating change, action-oriented messaging, implementing surveys, providing contact information for suggestions and questions, and other feedback opportunities should be clearly promoted to employees. That way more direct communication is highly encouraged between the company and its employees.
- Set managers up for success to help them engage with employees. People managers should have the best understanding of how the overall team and individual contributors are doing. Their words and actions can help establish great employee relationships – or lead to severed ties with the company. They’re the ones with the most direct access to hearing firsthand employee feedback and complaints, whether they’re related to grand company decisions or much more minute details. Regardless of the situation, being able to cascade information from the top-down and address feedback at the point of contact is key to having a pulse on overall employee engagement levels. Employees will possess a much better understanding of company goals and expectations and feel more connected to the rest of the organization when managers are fully prepared and equipped to handle a variety of situations.
- Create opportunities for career and personal development. One of the main reasons why some employees develop a desire to leave is due to a lack of opportunities and growth at the company. By utilizing talent management software and career development programs, and clearly communicating how to get the most from these opportunities, employees can see the potential for internal mobility and want to stay longer with the company.
- Use interactive, engaging methods for training and educating your new hires. Creating a successful onboarding experience sets up a strong, welcoming foundation to hopefully establish buy-in to the company’s mission, vision, and values. By using core values communication to clearly explain expectations and the company’s strategy for the future, employees can become better aligned with the company and work together towards a common goal.
- Help employees better understand the company’s total rewards. In recent years, companies have tried to attract and retain employees through their EVP, which includes thinking of an employee’s compensation as more than just their paycheck. Equity, benefits, perks, and other components make up the company’s complete total reward package and show how much the company wants to invest in their team on a personal level. No matter how attractive an employer’s programs may seem, employees are more likely to want to leave if they fail to understand and appreciate the company’s EVP and total rewards. That’s where utilizing an employee benefits communications software can help. Investing in employee communications can help bridge the knowledge gap.
By creating clear lines of communication with employees, companies can establish deeper relationships that will encourage engagement and long-term dedication to the organization, potentially keeping employee turnover under control. Technology and e-learning are some of the tools that companies are turning to nowadays to support their communication needs and onboarding processes. With new hire training being such a sizeable expense, companies ideally would like to see the greatest return on the monetary and time investment spent on each member of their team.